In his recent State of the Union address, President Bush gave a nod to the remarkable success of a once-small company called Baby Einstein Co., a maker of children’s educational DVDs and videos. The brainchild of small-business owner Julie Aigner-Clark, Baby Einstein was bought in 2001 by Walt Disney Co., which then built the series into a $200 million powerhouse.

With Disney’s deep pockets and distribution reach, most smaller rivals have been boxed out of big-box retailers — until now.

To go up against Baby Einstein, competing baby-DVD creators have banded together and are bundling their products under a single name: “Little Steps.” What’s more, they’ve aligned with a big distributor, Topics Entertainment, which is repackaging their disparate content into boxed sets under the Little Steps brand and paying each producer a licensing fee.

Started last summer, the Little Steps DVD line retails for about half the cost of the market leader and is already at various retailers, including Costco, Best Buy, Fry’s Electronics, Borders, BJ’s Wholesale Club and Sam’s Club.

Take a look at Sunwoo Entertainment’s ‘Wild Animal Baby’ series, with its Shrek-like animation.

Plus, WSJ small-business editor Wendy Bounds discusses small-DVD makers teaming up to gain market share.

“We just think…there’s room for two players in this market,” says Greg James, chief executive officer of Topics Entertainment, a Renton, Wash.-based multimedia publishing company and distributor of special-interest videos.

Executives at Baby Einstein weren’t available to comment.

The decision of the small players to band together highlights a business model that is a calculated gamble and, in some ways, flies in the face of the entrepreneurial spirit of going it alone. Under the Little Steps deal, each player traded some autonomy, branding opportunity, and potential revenue for the chance to get a foot in the door of chains where they had met roadblocks.

startupjournal.com